When I started in banking, there was no more premier a vendor in the industry than EDS (IBM maybe being the exception). Quality product, superior support, top flight staff, and a high service ethic were all attributes that came to mind when you heard the EDS name. EDS was a feared competitor and an enviable employer.
It is almost inconceivable to me that now, with the announced sale of the credit union business to Fiserv, EDS has exited the credit union, community bank, and regional bank markets. It has sold its core processing, item processing, and ATM businesses. Finito.
The official spin is that this will allow the company to focus on bigger markets, core competencies, etc. But think about that for a minute. How many corporations sell business units that are growing at a pace greater than other units, increasing their contribution to the bottom line, and making good use of the capital they are given? Not very many, guys – even for strategic reasons. Does your bank divest subsidiaries that are growing their profits and increasing their contribution to the bottom line? Nyet.
The fact is that EDS sold the banking and credit union businesses because over the last 5-10 years it was being beaten at it, and the numbers showed it. It sold from a position of weakness. To put it bluntly, EDS got run out of Dodge.
Generally speaking, I don’t view this event as good news for one simple reason. The best thing that can occur in the banking/credit union software market is competition among many strong companies with strong products. Because of this sale, the field of competition has now been reduced by one.
To understand how a one-time heavyweight player in a heavyweight industry got to a position of selling out, let’s take a look at these truths:
Banking is a way of life and a focus, not a subsidiary.
The vendors that dominate the banking industry today have one thing in common – banking is the only industry they serve. (Fiserv does have non-bank lines of business, but it still concentrates just on financial services.) No sharing R&D resource dollars with government services, or telecommunications, or health care. Banking is a complicated and unique industry, and vendors must give it their entire focus to be successful. Interestingly, the two big deals of the year were parent companies selling banking business groups. (The other was wireless company ALLTEL selling its banking subsidiary to Fidelity.)
A core product is mandatory.
No matter how revenue might be derived going forward, the truth is that the winners have solid core system solutions that much of their ancillary strategies support. In most cases, they wrote them (or at least one of them, if they have several) and have supported them for years. EDS hadn’t really articulated a solid core product strategy for years. The last system EDS wrote from scratch and took to market was released in the early ’70s. EDS spent a lot of money in the ’80s attempting to write a new core system with some large banks, but gave up after a while. It sold the MISER product – for a while. It sold ITI via its service bureaus – in two locations. It integrated and supported the CA product – for a while. It bought several credit union systems and supported them – for a while. However, none of these efforts produced the traction you need in a core system strategy. And, with the exception of the very large banks, nobody saw a need for a company that integrated other people’s products. By the way, another big name – IBM – experienced the same thing.
Consistency in top leadership matters – a lot.
The market share leaders in the banking software industry have seen little change at the very top. In my memory (which is still, by and large, pretty good), Fiserv has made one change in 15 years. Metavante, one; Jack Henry, one; OSI, one; Kirchman, none. None of the regional core processors have seen more than one. Even among some of the bigger non-core systems – Baker Hill, ARGO, APPRO, to name a few – there have been very few changes. In addition, the leadership is known by first name, at least among the clients.
I can’t count how many changes in leadership the EDS banking group went through in the same time, and I can’t name all the leaders. The parent corporation has changed CEOs twice in five years. The result? There was no association of the EDS name with a person, or a personality. Customers know that consistency of leadership produces consistency of vision and focus, and that’s what gets and keeps business in the long run.
As for the middle managers and employees? My own take on the EDS sales and support employees is that they were as loyal, competent and dedicated as their competitors – EDS didn’t lose the banking business because of them. Their situation reminds me of an old story about Bill Shoemaker, the famous jockey. After he finished near last three times racing the same horse, the horse’s owner started screaming at him, asking why he was paying the country’s foremost jockey with the best record in history all this money to see him finish last all the time. Shoemaker calmly turned to him and said, “Sir, the horse doesn’t ride the jockey.” (There’s an analogy here. Trust me).
Corporate re-organizations don’t solve problems.
In recent years, EDS had serious service problems in its lines of business. If you don’t believe me, ask the customers. They regularly complained, for example, about the reliability of the ATM network. Core customers saw missed deadlines for system enhancements. In response, what I heard regularly from EDS was that the sales or service organization had undergone a reorganization to improve sales, service, responsiveness, or something. This usually started with a front-line EDS rep saying, “I am really excited about our new structure. It will finally allow us to……” And they probably meant it, at least the first time. The first thing the client thinks, of course, is, “Damn! Did my account rep change again?” It got to be like musical chairs.
I have seen a lot of reorganization efforts, and I have only seen two good reasons for one to be undertaken:
1. Significant growth
2. Launch of a major new line of business or focus (ATM services, imaging, Internet banking, etc.)
Every other reason – to improve sales, improve service, re-focus on competencies, re-focus on the customer, and any other acronym for “solve a problem” – is nothing but noise that produces no results. I have never seen customer focus or sales improve simply by manipulating an org chart. An organization structure reflects your service ethic, it doesn’t produce it.
Momentum counts.
You can be the biggest name in the industry, or you can be a start-up. In either case, signings produce signings and stagnant sales produce stagnant sales. You might argue that this reflects a herd mentality among bank software buyers if you want. I could just as easily argue that it reflects a collective market wisdom. In either case, the vendors that can show recent net new signings have a credibility that can’t be matched. Bankers know that momentum means more R&D dollars, more money invested in support, more investment in employee training, and more money spent on customer relationships. EDS had lost new deal momentum in the last few years and was having trouble regaining it.
Well, loyal Gonzo readers, consider this: if you look at these truths and substitute a word here and there, we could be talking about your bank.
-tr